Fitch Affirms Village CDD No. 6 (FL) Special Assessment Bonds at 'A'; Outlook Stable

Fitch Ratings affirms the 'A' rating on the following Village Community Development District No. 6 (CDD No. 6), FL special assessment revenue bonds:

--$42.9 million special assessment revenue refunding bonds, series 2013.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from special assessments levied upon property owners within the phase 1 area of CDD 6. Special assessments have an equal lien on property as property taxes. Revenues from owners who have already prepaid their assessments are not included as pledged security. A cash-funded reserve established in the amount of $100,000 provides minimal additional security.

KEY RATING DRIVERS

POPULAR DEVELOPMENT FOR RETIREES: CDD No. 6 is part of The Villages, a large and very successful self-contained retirement community in central Florida with numerous amenities and entertainment venues.

FULLY DEVELOPED TAX BASE: The phase 1 area, upon which special assessment securing bonds are levied, is fully developed both horizontally and vertically. Only one of the 4,640 homes in phase 1 is still owned by the developer.

SPECIAL ASSESSMENTS ON PARITY WITH PROPERTY TAXES: Special assessments are levied on the property tax bill and carry the same lien on land as property taxes, ahead of all other liens including mortgage liens. The tax certificate process in Florida helps ensure that cash flow for debt service is maintained in case of tax delinquencies.

SOLID LAND TO LIEN RATIO: The value of the land to direct and overlapping debt for the district is elevated at over 15x, providing a strong economic basis for a robust tax certificate market.

SMALL AREA: The phase 1 area at a little over 1 1/2 square miles is larger than many CDDs but still smaller than most municipalities.

LIMITED TAXING FLEXIBILITY: The special assessment is set to provide a 10% to 15% coverage margin to offset a potential 400 tax delinquencies/unsold tax certificates out of 3,372 accounts. However, the special assessment levy is capped at the current rate.

RATING SENSITIVITIES

INCREASED DELINQUENCIES: A significant increase in delinquent tax payments could signal financial distress and move the rating downward.

CREDIT PROFILE

HIGHLY SUCCESSFUL, RAPIDLY GROWING RETIREMENT DEVELOPMENT

The Villages is a retirement community encompassing over 21,000 acres located primarily in Sumter County (Fitch implied GO rating of 'AA-') in central Florida. Portions of the development spill over into Marion and Lake (Fitch 'AA-' implied GO ratings) counties. Begun in the 1960s, the development has experienced extraordinary growth and currently contains over 46,000 homes. At build-out, The Villages is expected to have 112,000 residents and more than 58,000 homes.

The developer of The Villages is The Village of Lake-Sumter, Inc., a family-owned business established for the single purpose of developing the community. While control of most of the residential areas has devolved to residents, the developer still owns and manages most of the commercial properties within the development.

CDD ROLE AND AUTHORITY

CDD No. 6 was established in 2004 and currently encompasses 1,497 acres in Sumter County along the border with Lake County. The district is one of 15 districts within The Villages created to finance and maintain infrastructure within its boundaries. Among other powers, community development districts are authorized to levy and collect special assessments to service bonds as well as maintenance assessments to fund district operations.

The district is governed by a five member board of supervisors elected to four year staggered terms. The board employs a district manager to operate and maintain district assets. Initially the only landowner in the district, the developer currently has only a minimal voice in district affairs.

Fitch believes the district's independent governance structure insulates it from a recent IRS finding that the Village Center Community Development District (VCCDD) is not a governmental entity for issuing bonds. The finding, which could lead to the VCCDD's recreational bonds becoming taxable, was based on the election of a controlling portion of the VCCDD governing board by a single property owner. CDD No. 6 is an independent municipal entity with a representative board elected by residents. A recent taxable refunding of the VCCDD recreation bonds is expected to limit any potential future action by the IRS.

CDD 6 FULLY DEVELOPED

The district is entirely residential and fully developed with both infrastructure and homes. Development occurred in two phases. Phase 1 was financed by special assessment bonds issued in 2004, which were refunded by the series 2013 bonds. Special assessments from property owners within the phase 1 area are the source of payment for the series 2013 bonds.

Phase 1 consists of 1,008 acres and includes 3,093 standard homes, 246 premier homes and 1,301 villas--4,640 units in total. In addition, there are six recreational tracts within phase 1, five of which are owned by the developer. All but one of the homes have been sold to residents.

SOLID LAND TO LIEN RATIO, SOUND TAX COLLECTIONS

Fiscal 2014 assessed values for the entire district total close to $1.4 billion. This represents an increase of 5.4% from fiscal 2013 and more than a 12% jump from fiscal 2012. Modest leverage is indicated by a solid land to lien ratio of over 15x, including direct debt of both the phase 1 and phase 2 areas and overlapping tax-supported debt of the county and school board. Given that development is complete, the district board has no plans for additional debt.

Property tax and assessment collections for phase 1 have been strong, averaging close to 100% net of the allowance for early payment discount. In 2014 only one tax certificate was sold for phase 1 totalling $1,652, out of a levy of approximately $10 million. The district levies assessments assuming that all property owners will take advantage of the state's 4% early payment discount. Historically, early payment discounts have resulted in a 3.7% reduction in annual gross assessments collected.

Phase 1 has also experienced significant prepayments totalling nearly $1 million in each of the last two years. Prepayments must be used to redeem bonds. As a result, about $1.85 million of bonds have been redeemed--lowering annual debt service by about $160,000 or 5%.

EXCESS LEVY WILL PROVIDE ADDITIONAL DEBT SERVICE COVERAGE

Special assessments are generally sized in aggregate to provide narrow coverage of annual debt service, with any excess due mostly to some portion of taxpayers failing to take advantage of the 4% prepayment discount. However, the district levies assessments at a level equivalent to an interest rate that is 1% above the interest rate on the bonds (as allowed by Florida statutes).

The fiscal 2015 debt service assessment, net of 4% prepayment discounts and 2% administrative charges, provides 1.15x coverage of debt service. With an average annual debt service assessment per unit of about $1,087, the estimated excess revenues would provide coverage for more than 400 delinquencies. Bond provisions do not mandate that the district levy special assessments above the amount required for debt service. However, district officials have used excess assessment revenues to fund general operations, providing an incentive to maintain the levy at the higher level. Fitch considers this structure to be a positive credit feature relative to other CDD financings.

MINIMALLY SIZED DEBT SERVICE RESERVE FUND

The excess coverage of approximately 10%-15% of debt service partially mitigates the minimal debt service reserve fund (DSRF) of $100,000. The DSRF size represents about 3% of a typical DSRF, affording little protection against a significant interruption in collections.

AREA ECONOMY BOLSTERED BY THE VILLAGES

The presence of The Villages has been the catalyst for economic expansion in Sumter County and surrounding areas. Prior to this development, the economy was based on agriculture and corrections. At present, Village residents comprise more than half of the county's population and were primarily responsible the county's 5.8% average annual population growth between 2000 and 2010. According to the U.S. census, over 50% of residents are over 65 years old compared to the state average of 18.7%. The Villages and The Villages Regional Medical Center are the county's third and sixth largest employers, respectively.

Sumter County's economy continues to expand briskly. Employment growth was up by 6.4% in 2013 and an additional 7% in 2014. As a consequence of employment growth, county unemployment has declined from 7.6% in 2012 to 5.6% as of August 2014, well below the state and national averages. Income levels within the county are on par with the state averages but below the national norms. However, income growth in the county since 2008 has significantly outpaced state and national income trends--most likely due to an influx of residents into The Villages during this period. Villages' data indicates that about half of new homebuyers report income in excess of $100,000.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=936377

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